Taxes, Taxes, Taxes, Where's It All Gonna End?

This was the cry of a neighbor some fifty years ago, and it's as pertinent now as it was half a century ago. I mention it just to remind us all that complaints about taxes are nothing new. In fact, complaints about taxes and tax dodging are only slightly less old than taxes themselves.

A few months ago, Fareed Zacharia, a noted columnist, wrote a piece in Newsweek magazine suggesting that all federal income taxes in the United States have a zero percentage rate for persons making less than $100,000 per year. Incomes above that figure would still pay income tax on a graduated scale, actual percentages to be determined, but probably not above about ten percent. Almost all deductions would be eliminated. State income taxes would assumedly fall in line with national tax laws.

Before anyone begins applauding, Mr. Zacharia couples this plan with a national sales tax of about sixteen percent. (He calls it a value added tax.) He claims the revenues generated by this scheme would be sufficient to reduce the annual deficit substantially and would be fairer to all concerned. Money made by investment or savings would be taxed at the same rate as money made by work.

I thought the idea had some merit. Most people would no longer need to file federal tax returns, would not have any payroll deductions, money presently held by FICA would be put into circulation, and people could be sure the tax code was not being manipulated by the few to the detriment of the many.

Then it occurred to me that everything I buy would instantly become much more expensive. Consider: the farmer sells grain to a miller, who pays a tax; the miller sells flour to the baker, who pays a tax; the baker sells bread to the grocer, who pays a tax; and the grocer sells bread to me, and I pay a tax. Five transactions, all taxed at sixteen percent amount to a tax of eighty percent when all is said and done. (Actually even that figure is low, because value is added and prices go up with each sale.)

We also have the matter of exemptions. The example I just used is for food. A compelling case can be made, and many state legislatures have made it, that food must not be taxed because it is a necessity of life. In the same way, medicines are not taxed, doctor's visits are not taxed, charities do not pay tax on donations, even though money is changing hands.

So, I'm skeptical about a national sales tax. It seems to me that it would fall most heavily on the bottom rungs of our economic ladder.

My own thought concerning federal taxes is really very simple. Taxes in the lowest bracket should be zero percent. How much income would be exempt is a matter for discussion, but there would be a definite minimum income below which there would be no tax. To make up for the revenues lost by this plan, we would eliminate deductions for many business expenses and make the capital gains tax rate the same as the one for ordinary earned income. It's absurd that the current tax code is so arcane and full of special provisions that only a dedicated few can make sense of it and gain from it.

And lest anyone shout, "Income redistribution!" as the John McCain presidential campaign did two years ago, I'd just answer that every change in the tax code is income redistribution. For once, those of us of modest means should change the tax scheme to our own advantage.